Ergon making $78M investment

December 3, 2012

NEWELL - According to the International Energy Agency, drilling in the Marcellus and Utica shale formations should help the U.S. surge past Saudi Arabia as the world's largest oil producer by 2020.

Since Ergon Inc.'s refinery is located right in the heart of this burgeoning oilfield, the Jackson, Miss.-based company is investing more than $78 million to expand its capacity to take advantage of the increased local crude production.

"This expansion will provide our customers with even greater reliability, higher quality fuels and an improved customer experience," said Don Davis, president of Ergon West Virginia.

The majority of the projects will be finished next year, with the remainder to be completed in 2014.

Located near the very northern tip of West Virginia's Northern Panhandle, the Ergon oil refinery opened in 1972. The company acquired the facility from Quaker State - now a subsidiary of global oil giant Royal Dutch Shell - in July 1997.

According to the company, the Newell refinery uses high-pressure hydrotreating technology to produce highly refined specialty products and fuels from local Appalachian grade crude. The facility now can process more than 20,000 barrels of oil per day, gathering most of its oil from Pennsylvania, Ohio, West Virginia, Kentucky and New York.

The oil is taken by truck or pipeline to gathering centers in Ohio and Pennsylvania before moving on to the refinery by truck, barge and pipeline. The oils refined by Ergon can become motor oils, gear oils, greases, pharmaceutical and agricultural spray oils, and in rubber applications.

Drilling, fracking, processing, transporting and cracking in the Marcellus and Utica shale formations throughout the Upper Ohio Valley continue to increase. Major corporations such as Chesapeake Energy, Gulfport Energy, Chevron, Exxon Mobil, Dominion Resources, MarkWest Energy, Williams Partners and Royal Dutch Shell are all taking their stakes by investing billions of dollars to harvest the resources that lie thousands of feet underground. Now, Ergon is confident enough in the oilfield to make this $78 million investment.

In addition to the natural gas found in the Marcellus and Utica formations, oil and natural gas liquids (ethane, propane, butane and pentane) are also prevalent in the rocks - particularly the farther west one drills. The report shows that oil and gas from unconventional sources in the U.S. are expected to significantly increase until 2035.

The international agency's information also predicts the U.S. will be "almost self-sufficient in energy, in net terms, by 2035." The projections show U.S. oil production peaking in 2020 at 11.1 million barrels a day. This theoretically means the need to import oil from the Middle East would end over the next decade.

The report shows that by 2020, shale drilling should allow the U.S. to surpass Saudi Arabia in oil production. It also shows the U.S. should become a net exporter of natural gas within the next eight years, meaning the country should be able to produce more than it can consume.